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America Has No Energy Plan, But These Entrepreneurs Do – peak oil

Twenty-one years ago, President George H.
W. Bush admitted that he lacked “the vision thing,” but when it
comes to energy and transportation policy, nearly all of our
leaders since him have been equally impaired.

Despite having lived through the oil shock
of the early 1970s, only to see our oil imports since then rise
steadily to two-thirds of our consumption today…

Despite increasingly urgent warnings from
agencies such as the IEA, who warned one month ago that if oil
demand recovers in 2010, global spare oil production capacity would
fall to zero by 2013, sending oil prices skyrocketing…

Despite ample evidence and clear
mathematics that the world could be down to 75% of today’s energy
budget in 20 years, down to less than 50% in 40 years, and down to
less than 10% in 80 years…

The US still has no plan whatsoever to
deal with the impending energy crisis, a crisis that threatens to
drastically shrink our economy and change our way of life forever.
Nobody is driving this bus; we’re all passengers.

After nearly 40 years of evidence that
finite energy supplies inexorably reach a point of diminishing
returns, I can only ask: Why do we still not have a plan? Any
plan?

The Pickens Plan

One plan that we do have on the table is
the Pickens Plan, T. Boone Pickens’ proposal for making a dent in
foreign oil consumption. It imagines a corridor of large wind
turbines stretching through the windy heartland from Texas to North
Dakota, which would replace the 22% of our current electricity
supply that is generated from natural gas. Then we would use the
natural gas to run commercial and fleet vehicles, offsetting 38% of
our demand for foreign oil.

Pickens critics were quick to sling mud on
the plan, alleging that he is only trying to line his own pockets
with taxpayer money, despite the obvious fact that at the age of
80, he’s unlikely to see the fruition of his plan, let alone
realize the fortune that it might bring to its investors. Pickens
himself has said as much, indicating that his real motivation is to
leave a legacy that will put the country on a more sustainable
path. (Pickens is a strong proponent of peak oil and probably
understands the oil business as well as anyone else alive.)

I have voiced a number of important
questions about the Pickens Plan, including how and when the
natural gas fired power plants will be decommissioned, the cost and
the time-to-market for natural gas powered vehicles, how the
project will be financed, and whether our domestic natural gas
resources are up to the job. (See “Will Arctic Oil, Natural Gas,
MIT, Paris and Pickens Save the Day?” for more on that.)

Although those questions remain
unanswered, we at Energy and Capital and Green Chip Stocks have
written a fair bit on the Pickens Plan, not because it’s perfect,
but because it’s a plan. Something is better than nothing. At the
very least, to the extent that the wind and natural gas parts of it
work out, it would make a dent in our oil imports.

The Better Place Plan

I can only think of one other serious plan
that excites me, which seems truly pragmatic and sensible: Better
Place, a company with a plan to replace oil-burning cars with
all-electric cars.

Better Place starts with a simple
objective: How do you run an entire country without oil? (Which
immediately makes me wonder: Why are none of our elected leaders
asking themselves that question?)

At a Brookings Institute presentation last
summer, CEO Shai Agassi ticked off the key elements that will allow
his plan to succeed.

The first element is policy. Last year,
Israel set a goal to get off oil entirely within a decade. By a
simple mechanism that would gradually raise taxes on gasoline-based
cars over the decade, consumers would be driven toward zero-oil
cars. With Israel’s leadership, later joined by Denmark,
Australia, California, and Hawaii, there is a bona fide market for
the vehicles.

The second element was a commitment by
automakers Renault and Nissan to build all-electric cars in
partnership with Better Place that would go 100 miles on a single
charge. For the majority of users, such a range is more than
adequate for a daily commute and errands, and the cars would be
recharged from the grid at public parking spaces and at home. For
longer distance travel, Better Place envisions that one would be
able to drive up to a device like a car wash, and have the battery
pack replaced in about the same amount of time that it takes to
fill up with gasoline today.

(There may be an even better option. New research from MIT
published in the March 12 issue of the journal Nature found that by
coating lithium iron phosphate particles with a thin film of
lithium pyrophosphate, they could allow a lithium ion battery to be
charged and discharged hundreds of times faster than normal,
potentially eliminating the need for battery-swapping
stations.)

A third element to the Better Place plan
is to deploy a charging infrastructure. A half a million charging
parking spots will be established initially, which can recharge the
car automatically, billing via a built-in ID chip. The company has
already obtained $200 in private seed capital to built the charging
stations in Denmark and Israel.

The fourth element is the business model
itself. Agassi compares it to that of the cell phone business:
Instead of charging consumers for the car, it will essentially lend
the cars to consumer for free when they sign up for a four-year
plan. Consumers will pay only for miles driven and for access to
charging stations, which will cost them no more than they already
pay for gasoline Agassi claims, and will be sheltered from the risk
of owning an expensive, cutting-edge battery pack.

A final benefit of the Better Place
strategy is that enlarging the overall fleet of electric vehicles
has a multiplier effect. By enabling vehicle-to-grid (V2G)
technologies that can use plugged-in electric vehicles as temporary
storage, V2G holds great promise as a way to help solve the storage
problem of intermittent renewable energy sources like wind and
solar, which further enables their growth. At the same time, it
creates demand for renewable electric power.

Cars created under the Better Place
program are slated for mass production by 2011. By comparison,
Chevy will bring just 10,000 units of its new electric Volt to
market in 2010, which will do only 40 miles on a charge, at a cost
of $40,000. Remember, the Better Place cars will be essentially
free to own.

Agassi estimates that under the Better
Place plan, at a cost of $500 per car, or about $100 billion, the
US could get its 200 million cars off oil entirely. At $45 a barrel
and 20 million barrels per day of consumption, that’s equivalent
to what the US now spends on oil in only four months!

The German Plan

It’s not a serious plan to get off oil,
but I should mention a curious program Germany has begun which will
give a $3,250 rebate to anyone who will scrap an automobile at
least nine years old, provide proof that it has been destroyed, and
buy a new or slightly used car. It’s mainly a stimulus package for
the automobile industry, but if it replaces a potential 1.2 million
old cars (out of a fleet of over 40 million) with more efficient
ones, it would certainly reduce their import needs.

Again: at least it’s a plan.

Congress’ Plan

Against the brilliant Better Place plan
and the pragmatic Pickens Plan, Congress’ plan, as embodied in the
$800 billion stimulus package signed into law last month, looks
downright shabby.

The $100 billion that Agassi would need to
achieve his vision is about one-eighth the price of the stimulus
package. Although the latter includes $150 billion in public works
projects for transportation, energy and technology, it would only
put one million electric vehicles on the road—that’s 0.5% of
our current fleet—in six years, and there is little else in
it that would actually reduce our use of transportation fuel any
time soon. It’s a start, but it’s really far too little, too
late. In six years, we’ll be about three years past the global oil
peak and clawing for solutions.

For another comparison, $100 billion is a
mere 4% of the $2.5 trillion that we’re spending to shore up the
fundamentally insolvent banking system. That includes $175 billion
to extend the life of the terminally ill AIG, some of which is
going to bail out its default-swap counterparties, including
Goldman Sachs.

Even the portion of the stimulus package
dedicated to rail—the most obvious, tried-and-true
transportation technology we possess—is a mere $12 billion or
so. The repair backlog for Amtrak’s northeast corridor alone is
$10 billion. Just $1.1 billion will be spent on improving Amtrak
and intercity passenger rail, and another $1 billion is designated
for new commuter and light rail.

At this point, the hopes I once had for a
rail renaissance in the 2009 funding spree have all but faded.

(For his part, President George W. Bush
proposed eliminating the budget for Amtrak entirely in 2006.
Apparently he inherited his father’s lack of “the vision
thing.”)

Meanwhile about $30 billion of the
stimulus package is targeted for road-building, a painfully stupid
investment on a dead end street. In the wake of the most
destructive spike and crash of commodity prices in recent history,
Congress still doesn’t understand that oil prices will spike
again, and that our days of importing 13 million barrels per day of
oil are numbered.

Now, I’m not saying that the Better Place
vision can be achieved exactly as advertised, because it’s a bit
too early to say. But at least it’s a plan—a plan that
absolutely can be implemented with today’s technology, that’s
scalable, and that comes at a very attractive price.

America desperately needs serious energy
leaders who will not flinch at telling the truth about the future
of energy, and who are willing to figure out how in the world
we’re going to navigate it. Clearly, presidents and Congressmen
are not those people. We can only hope that the visions of business
leaders like Pickens and Agassi will succeed despite them.